Compliance Blog

Posted by Anthony Demangone

For the past few months, I have occasionally written about how increasing regulatory burdens or restrictions (Regulations E and Z, or Reg Reform) could diminish the availability of "free" checking. The New York Times recently published an article that, in part, highlights the trend.  

There are signs that is already happening across the industry. Free checking, a banking mainstay of the last decade, could soon go the way of free toasters for new account holders. Banks are already moving to make up the revenue they will lose on lower overdraft and debit card transaction charges by raising fees on other services. 

Banks like Wells Fargo, Regions Financial of Alabama and Fifth Third of Ohio, for instance,  charge new customers a monthly maintenance fee of $2 to $15 a month — as much as $180 a year — on the most basic accounts. Even TCF Financial of Minnesota, whose marketing mantra championed “totally free checking," started imposing fees this year in anticipation of the new rules. 

To be sure, in many cases customers can escape the new checking account charges by maintaining a minimum balance or by using other banking services, like direct deposit for paychecks and signing up for a debit card. 

I mention this for a number of reasons.

1. We told them so.  As an industry, we warned Congress and regulators that increased costs and burdens would increase costs and limit account access for many Americans.  As we write comment letters in the future, please remember this.  I'm trying to collect articles and papers that discuss the end of free checking.  I plan on bringing them back out whenever I need to remind people that regulations have consequences.  If you increase costs for banks and credit unions, at some point, they'll have to pass them down the line.
2. Watch out for consolidation.  I'd bet that every account maintenance fee is waived for members or customers who have a certain level of relationship.  It could be shares or deposits.  Or loan balances.  Or a number of check card transactions. There could be some consolidation as consumers try to configure their accounts in a way to reduce or eliminate monthly maintenance fees. 
3. CFPB.  Regulatory reform has (or very shortly will) created a new consumer watchdog.  It might be tempting to increase fees on the share side, but be aware that such fees could come under attack in the near future.  In the past few years, regulators have put the brakes on overdraft fees, credit card fees, mortgage fees, and interchange fees/income.  I don't see any reason why monthly maintenance fees are protected from such efforts.  All it will take is a few outrageous stories and a number of congressional hearings before someone drafts the Fair And Reasonable Deposit Account Fee Act of 2011.  It could happen.